The South African Property Owners’ Association (SAPOA) held its 46th International Property Convention and Exhibition in Cape Town last month. Rising municipal rates and property valuations were some of the topics discussed during the convention.

SAPOA recently commissioned the University of Pretoria to investigate annual increases in municipal rates in 11 of the country’s largest municipalities, and its economic impact on businesses. The researchers found that annual increases in municipal rates could be linked to 4500 job losses, and a loss in economic output of close to R2,8 billion.

Escalating property rates and taxes and inflated municipal valuations of property have a direct impact on the viability of businesses and industry, and as a result, on industrial property investment.

At the end of last year SAPOA reported that its 1200 members had experienced an average increase of rates of 23% for the year, while over the past five years rates had increased by between 43% and 500%.

Landlords have no other recourse but to pass these increases on to their tenants through higher rentals. Higher rents in turn affect businesses’ ability to remain viable and profitable, and may result in closures or may even discourage economic activity within certain municipal boundaries.

SAPOA said their members were concerned that municipalities were inflating rates and property valuations in order to compensate for their inability or unwillingness to collect outstanding debt. SAPOA members also reported inconsistencies in municipal valuations.

At the root of the problem lies the more worrying trend that increases in rates and valuations are often not matched by improvements in municipal service delivery. Poorly maintained roads increase vehicle maintenance, while electricity cuts and poor water quality have a direct impact on manufacturing, as do work stoppages and absenteeism as a result of inadequate public transport. Infrequent garbage removal not only detracts investment in property, but unused industrial lots also attract criminals.